Sharpe Knife Company expects sales next year to be $1,550,000 if the economy is strong, $825,000 if the economy is steady, and $550,000 if the economy is weak. Ms. Sharpe believes there is a 30 percent probability the economy will be strong, a 40 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for the next year

Question

Damaris Lam

Business

2 January, 08:09

Sharpe Knife Company expects sales next year to be $1,550,000 if the economy is strong, $825,000 if the economy is steady, and $550,000 if the economy is weak. Ms. Sharpe believes there is a 30 percent probability the economy will be strong, a 40 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for the next year

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Answers (1)

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Lilian Young · Answer 1

The expected level of sales for the next year is $960000

Explanation:

The expected sales will be calculated based on the probabiltiy of the economic condition multiplied by sales in that economic condition.

The expected sales for the next year will be,

Expected sales = 1550000 * 0.3 + 825000 * 0.4 + 550000 * 0.3

Expected Sales = $960000